Holistic retirement thinking: Integrating public, private pensions

Yaelle Gang | April 12, 2019

Defined contribution plan sponsors should consider Canada’s public pension system when designing their plans, according to a panel comparing the Canadian system to the ones in Denmark, the Netherlands and Sweden at Benefits Canada’s 2019 DC Plan Summit in Banff, Alta. in February.

Canada’s three-pillar system is comprised of old-age security and the guaranteed income supplement; the Canada Pension Plan; and private savings, which includes employer-sponsored plans. While the first and second pillars offer a decent base for retirement, it isn’t enough, said Assia Billig, who was recently named Canada’s chief actuary. She also noted the system wasn’t intended to rely on public pensions alone.

However, this third pillar is where Canadians don’t fare as well. “If you look at the coverage in the private sector, including group registered retirement savings plans and direct stock purchase plans, we have approximately 35 per cent of the private labour force in the private sector covered,” she said.

Ole Beier Sørensen, independent consultant at Beier Research and former chief pension researcher of Dutch pension fund ATP, said private pension coverage in Denmark, the Netherlands and Sweden is in the 90 per cent range. “We focus on the totality,” he said, noting the countries look at the complementarity and sum of the public and private systems.

All three countries offer a web-based tool where people can access information about their public and private pension holdings, said Sørensen, noting this allows people to see an overview of their future pensions as a starting point and changes the conversation.

While private plans complement the public system, this is often forgotten, and it’s plan sponsors’ obligation to design their plans with the public system in mind, said Sørensen.

Indeed, Billig stressed that Canadian employers should be considering the public system, like the CPP, when designing their plans, and then ask what they can offer to top it up. She noted education around the Canadian social security system is very low, and plan sponsors and service providers should be stepping up to educate members.

In light of this year’s CPP expansion, it’s a good time to take another look at private plan design, she added. “I think, for you, it’s a good opportunity to go back to the drawing board and see how your design incorporates this retirement benefit.”